South Orange County Blog from Bob Phillips

The subprime mortgage crisis wasn’t about subprime mortgages

By Chris Mathews, of Fortune Magazine, 6/17, 2015

next-exitNew research challenges the conventional wisdom on the financial crisis.

In the years following the financial crisis, a cottage industry arose that tried to explain just what happened to the American economy and the financial system.

Early on in the process, journalists zeroed in on one set of villains: subprime lenders and the supposedly irresponsible borrowers who were their customers. We were regaled with stories of mortgage lenders like Countrywide handing out loans that borrowers couldn’t possibly repay, and then selling them on to investment banks, who packaged them into “toxic” bundles like Goldman Sachs’ infamous Abacus collateralized debt obligation.

When these subprime borrowers began to default, so the narrative goes, the dominoes began to fall, eventually helping to send the entire mortgage market, U.S. financial system, and global economy into crisis.

At the time, the press spent a lot of energy scrutinizing subprime borrowers and lenders, based on the fact that in the early days of the crisis, the rate and absolute number of subprime foreclosures were much higher than foreclosures in the prime market. It was around this time that CNBC’s Rick Santelli gave his famous rant against talk of bailing out underwater homeowners that helped launch the Tea Party movement, calling the folks who were at risk of foreclosure “losers.”

Furthermore, much of the reforms instituted since the financial crisis have centered around increasing scrutiny of mortgage lending, to make sure that these sorts of irresponsible loans aren’t made again.

But if journalism is the first-draft of history, then it’s about time for a second draft. In a new working paper by Wharton economists Fernando Ferreira and Joseph Gyourko, the authors argue that the idea that subprime lending triggered the crisis is misguided. The paper looks at foreclosure data from 1997 through 2012 and finds that while foreclosure activity started first in the subprime market, the foreclosure activity in the prime market quickly outnumbered the number of subprime foreclosures.

The following chart shows the total number of foreclosures and short sales per quarter in various classes of mortgages:

Screen Shot 2015-06-17 at 10.38.09 AM

While subprime borrowers default at a higher rate than prime borrowers, Fierra said in an interview with Fortunethat the data shown above suggest that the foreclosure crisis would have happened even in the absence of such risky lending. “People have this idea that subprime took over, but that’s far from the truth,” says Ferreira. The vast majority of mortgages in the U.S. were still given to prime borrowers, which means that the real estate bubble was a phenomenon fueled mostly by creditworthy borrowers buying and selling homes they simply thought wouldn’t ever decrease in value.

We can draw two conclusions from this data. One is that your chances of being foreclosed upon in the past decade was more a matter of timing than anything else. If you were a subprime borrower in, for instance 2002, who bought a bigger house than a more prudent and creditworthy borrower would have bought, chances are you would have been fine. But a prime borrower who did everything right—bought a house he could easily afford, with a large downpayment—but did so in 2006 would have had a higher chance of defaulting than the subprime borrower with better timing.

Since whether you were hurt by the crisis had more to do with luck than anything else, Ferreira argues we should rethink whether doing more to help underwater homeowners would have been a good idea.

The research also offers some sobering policy implications. Ferreira’s data show that even with strict limits on borrowing—say, requiring every borrower to put 20% down in all circumstances—wouldn’t have prevented the worst of the foreclosure crisis. “It’s really hard for certain regulations to stop the process [of a bubble forming],” Ferreira says. “I really wish my research had showed that it’s all about putting down 20% and all problems are solved, but the reality is more complicated than that.”

Furthermore, we still don’t have the tools to understand the cycles of real estate prices, or to recognize bubbles, in any asset class, before they form. So it would be a mistake to think that any regulatory reform will offer fool-proof protection against the next financial crisis.

The booms that capitalism confers on us, it seems, will inevitably be followed by busts. ( End of Chris’ article.)

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HARP and HAMP Receive Probable Final Annual Extension

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( An article from Colin Robertson of TheTruthAboutMortgage.com dated May 11, 2015 )

Since being introduced back in 2009, both and the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) have helped millions either avoid foreclosure and/or save money on monthly mortgage payments.

Both programs have been deemed pretty successful, though the numbers did fall short of original projections (as everyone probably expected) despite several annual extensions. I think the original estimate was nine million.

HAMP Is Finished at the End of 2016

HAMP

Since HAMP was launched in the spring of 2009, a total of about 1.5 million homeowners have received permanent loan modifications through the fourth quarter of 2014.

Nearly 2.3 million trial modifications were started but fewer than one million are permanent and still active either because of a positive outcome such as loan payoff or alternative modification, or because of something negative like a short sale or foreclosure.

This has resulted in aggregate savings of approximately $32.7 billion compared with prior unmodified mortgage obligations.

The goal of HAMP is to get the borrower’s front-end DTI ratio down to 31% by reducing the interest rate, extending the loan term, and potentially forgiving principal.

About 95% of HAMP loans received an interest rate reduction, though those are temporary and subject to rise.

Just over 60% of HAMP borrowers received a term extension and less than a third (30.3%) received principal forbearance.

[HAMP participants are now eligible for $5,000 more in principal forgiveness.]

HARP Probably Done After 2016

The Home Affordable Refinance Program (HARP) is a program that allows underwater borrowers with Fannie Mae- and Freddie Mac-backed mortgages to refinance to take advantage of lower interest rates.

It originally allowed borrowers to refinance with LTVs as high as 105%, but that number was later increased to 125% and eventually the cap was removed entirely for most types of loans.

Over the years there were pleas to expand the program and open it up to borrowers with non-agency mortgages (remember HARP 3), but those demands fell on deaf ears.

To date, roughly 3.3 million borrowers have taken advantage of the program, though the numbers have been waning lately. Around 10,000 borrowers are refinancing monthly via HARP nowadays.

This is not unexpected given the fact that most have already applied for assistance under the program or no longer need it thanks to rising home prices.

During FHFA director Mel Watt’s speech at the Greenlining Institute 22nd Annual Economic Summit last Friday, he spoke about both programs and revealed that HAMP would be finished after one final extension through the end of 2016.

Since March 2013, Fannie and Freddie have also offered a proprietary Streamlined Modification that requires less paperwork than HAMP, and this could serve as an ongoing loss mitigation solution for borrowers.

As far as HARP goes, he said “we anticipate that this will also be the final extension for HARP.”

Apparently some 600,000 plus borrowers could still benefit from HARP though they’ve yet to come forward for one reason or another.

Watt said the FHFA will use the next year and a half “to explore possible streamlined refinance solutions for future Enterprise loans,” so there might be some kind of permanent HARP solution for Fannie and Freddie loans that “might apply in a non-crisis environment.” ( End of Colin’s article.)

From Bob Phillips:  Over the past couple of years, local house prices have risen substantially, which may help in two different ways.  First, former underwater homeowners may now actually have some equity, hopefully allowing a little breathing room.

Second, owners having difficulty making their payments on a loan that has a high interest rate, may, in fact, be able to refinance now, where they couldn’t before, staying in their home with a lower payment, OR, they may now be able to sell their home without going through a short sale, getting themselves out from under a terrible loan that they’ve been living with, for years.

Even if the home is STILL underwater, solutions have become easier to accomplish, if you’re dealing with an agent who has both training and experience, in dealing with distressed loan situations.  I, Bob Phillips, have both the training, and the experience, to help you sort out the many options you might have.

If you – or someone you know – is still having difficulty making their house payments, please consider calling me at (949) 887-5305, or shoot me an email to BobPhillipsRE@gmail.com.

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CoreLogic: Nearly 1 million houses return to positive equity

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An article by Brena Swanson, of HousingWire.com, dated 9/25/2014:

Nearly 1 million properties returned to positive equity in the second quarter of 2014, bringing the total number of mortgaged residential properties with equity in the U.S. to more than 44 million.

The latest CoreLogic report revealed that 946,000 residential properties regained equity, and nationwide, borrower equity increased year over year by approximately $1 trillion in second quarter 2014.

Negative equity means that borrowers owe more on their mortgages than their homes are worth.

“The increase in borrower equity of $1 trillion from a year earlier is evidence that things are moving solidly in the right direction,” said Sam Khater, deputy chief economist for CoreLogic. “Borrower equity is important because home equity constitutes borrowers’ largest investment segment and, as a result, is driving forward the rise in wealth for the typical homeowner.”

However, there are still approximately 5.3 million homes, or 10.7% of all residential properties with a mortgage, that are still in negative equity as of second quarter 2014. This is compared to 6.3 million homes, or 12.7%, for first quarter 2014, and a negative equity share of 14.9%, or 7.2 million homes, in second quarter 2013, representing a year-over-year decrease in the number of homes underwater by almost 2 million, or 4.2%.

“Many homeowners across the country are seeing the equity value in their homes grow, which lifts the economy as a whole,” said Anand Nallathambi, president and CEO of CoreLogic.

“With more and more borrowers regaining equity, we expect homeownership to become an increasingly attractive option for many who have remained on the sidelines in the aftermath of the great recession. This should provide more opportunities for people to sell their homes, purchase a different home or refinance an existing mortgage,” Nallathambi added.

For the homes in negative equity status, the national aggregate value of negative equity was $345.1 billion at the end of second quarter 2014, down $38.1 billion from approximately $383.2 billion in the first quarter 2014. Year-over-year, the value of negative equity declined from $432.9 billion in second quarter 2013, representing a decrease of 20.3% in 12 months.

In addition, of the 44 million residential properties with positive equity, approximately 9 million, or 19%, have less than 20-percent equity (referred to as “under-equitied”) and 1.3 million of those have less than 5%(referred to as near-negative equity). ( End of Brena’s article.)

From Bob Phillips, CDPE, Realty One Group, South Orange County, CA

The initials after my name, above, CDPE, stand for Certified Distressed Properties Expert, and reflect some unique training I’ve received, over the past several years.  They also validate that I have both training and experience, in guiding homeowners who are having difficulties with their mortgages, to solutions, either in continuing to keep their homes, or in assisting them to get out from under an unmanageable mortgage, and on with their lives, as painlessly as possible.

If you, or someone you know, is STILL having difficulty with making your mortgage payments, I am prepared to offer solutions – most of which have ZERO costs associated with them.  Give me a call or text today.  Bob Phillips, CDPE, Realty One Group, Cell: (949) 887-5305 or email me at BobPhillipsRE@gmail.com

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Orange County Housing Report: Bumping Along a Ceiling

aThe following is today’s Orange County Housing Report, from my local economist friend Steven Thomas.

Pushing the ceilingOrange County Housing Report: Bumping Along a Ceiling,  August 3, 2014

With the best time of the year to sell coming to a quick end, Orange County appreciation is coming  to an end. 

A Ceiling in Values: Sellers are learning the hard way that they can no longer arbitrarily set the price.

Buyers, sellers, REALTORS®, lenders, and everybody else involved within real estate know that there is a palpable difference in the 2014 real estate market. The number of homes fetching multiple offers is shrinking drastically. Homes are sitting on the market. The expected market time is on the rise. The active inventory has been growing all year and  just surpassed the 8,000 home mark, just a few hundred short of a long term county average.

The lesson for 2014 is that sellers cannot price their homes on a whim, on what they would like to walk away with from the sale of their home. 2012 and 2013 were completely different. In those years, values were skyrocketing. When that occurred, sellers were able to price their homes above recent sales. They dealt with multiple offers and often sold for more than their list prices. That simply is not the case anymore; yet, sellers continue to adopt that strategy and overprice their homes.

What changed? Values reached a level where buyers were no longer comfortable paying much more than the most recent sale. They wanted to pay what is “fair,” also known as the Fair Market Value. This explains why month to month appreciation has stalled. Unfortunately, news outlets across the country mainly report on year over year statistics; whereas, month to month statistics tell the real story. Orange County’s headlines highlighted a 10% increase in the median sales price year over year in June. Drill down a little bit deeper, when you remove new home sales, residential detached houses are up 6.6% and condominiums are only up 4.2%. That’s the difference in a year. Most important, month to month appreciation is flat.

With flat appreciation, the Orange County housing market is bumping along a value ceiling. And, the Autumn Market is right around the corner. Cyclically, housing cools a bit after the kids go back to school. It will cool further during the Holiday Market, from Thanksgiving through the first few weeks of the New Year.

When the market bounces along a value ceiling, occasionally there is a sale in a neighborhood that neighbors get really excited about and are lured to jump into the housing fray. Typically, they price above that sale in hopes that they can get more. They also add an additional amount leaving “room for negotiating.” Remember, this is a market where buyers do not want to pay too much for a home. So, the home sits on the market. Eventually, after one or two reductions, they arrive at or near the sales price of the home that motivated them to sell in the first place. Surprisingly, they still are unable to sell and just sit on the market longer. It could be condition, location, or upgrades, but often it is that buyers do not want to match the price of that most recent sale. After viewing similar properties, potential buyers feel that another buyer simply overpaid. That can still happen today, but just because one buyer is willing to stretch the value, the vast majority are not. The bottom line: when a home sits on the market even though it is priced at or near a recent closed sale, the price is too high.

As we bounce along a ceiling, sellers should price their homes realistically right from the start, taking into consideration the most recent sales, all pending sales, their condition, location, and upgrades. DO NOT PRICE BASED UPON OTHER LISTINGS; instead, know your competition, but price according to pending and closed sales. There are neighborhoods where every single home on the market is overpriced. In that case, instead of the lowest priced home selling, everybody will sit on the market with absolutely no success.

Active Inventory: The active inventory increased by 3% in the past two weeks and pushed past the 8,000 home mark.

8-3-14-active inventory-y-o-y

The active listing inventory added an additional 231 homes in the past two weeks and now totals 8,057. That’s the first time the inventory has been above 8,000 homes since January 2012, 2½ years ago. Thus far in 2014 the inventory has grown without pause, adding an additional 3,324, a 70% increase, and is poised to continue to increase through the end August. Keep in mind, in order for the active inventory to grow, more home need to be placed on the market than are coming off as pending sales.

Last year at this time there were 5,522 homes on the market, 2,535 fewer than today.

DemandDemand increased by 2% in the past two weeks.

8-3-14-demand

Demand, the number of new pending sales over the past month, increased by 48 now totals 2,549. After an initial small dip in demand in July, it will slightly rise in August. Last year at this time demand was at 2,707, 158 additional pending sales compared to today.

Distressed Breakdown: The distressed inventory increased by 5% in the past two weeks.

The distressed inventory, foreclosures and short sales combined, increased by 13 homes and now totals 294, its highest level since December of last year. The distressed inventory started the year at 271, so it really has not changed much. The long term trend is for it to remain at a very low level. Last month, they represented only 5% of all closed sales.

In the past two weeks, the number of active foreclosures increased by 2 homes and now totals 78. Only 1% of the active inventory is a foreclosure. The expected market time for foreclosures is 65 days. The short sale inventory increased by 11 homes in the past two weeks and now totals 216. The expected market time is 48 days and remains one of the hottest segments of the Orange County market. Short sales represent 3% of the total active inventory. ( End of Steven’s report.)

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The Latest Orange County Housing Report

Below is the latest Orange County Housing Report from my friend, Steven Thomas.

Window of OpportunityOrange County Housing Report:  The Window of Opportunity is Closing

Summer is flying by and so is the second best time of the year to sell a house 

Window of Opportunity: The second best time of the year to sell will come to an end as soon as the kids go back to school and housing transitions into the Autumn Market.

This year, the transition from the Summer Market to the Autumn Market is a bit more significant because the expected market time is moving away from a seller’s market to one that is balanced, favoring neither the seller   nor the buyer. It is also important to note that the best time of the year to sell is already behind us, the Spring Market. Summer is mistakenly viewed as the best, but the higher sales numbers are actually a reflection of  pending sales that were negotiated during the spring, but did not close until the summer. As a result of a lot of publicity that is circulated about closed sales, many are duped into thinking that right now is the best time to sell; unfortunately, they are wrong.

Back to school means that fewer buyers are yearning to make an immediate move. Buyers with children factor the displacement of their children and the strain on their family in moving during a school year. As a result, many buyers simply opt to wait until the following spring to start the process of isolating their next home.

As housing transitions into the Autumn Market, the window of opportunity in taking advantage of the summer will come to an end. That does not mean that sellers will not be successful; however, it is going to take a bit more patience and accurately pricing will be fundamental in luring a willing and able buyer. Sellers will absolutely NOT get away with overpricing a home. Ironically, most sellers initially list their homes outside of the realm of reality and arbitrarily price based upon what they want rather than what buyers are willing to pay. Today’s buyers are looking to pay very close to a home’s Fair Market Value, a value based upon the most recent comparable sales activity.

Appreciation has already slowed to a crawl, but it is going to slow further, from 1% to 0%, a flat line. Pricing a home in hopes that the market will appreciate enough to come up to an overpriced level is a fruitless strategy only resulting in a decision to make: reduce the asking price or throw in the towel.

The proverbial “window of opportunity” is closing further because the Orange County housing market is marching its way towards a balanced market, leaving behind the seller’s market of the past 2½ years. This may not occur in all price ranges or cities, but, at the very least, will slow across the board, affecting every community and every price across the county. This will require patience and accurate pricing to succeed. Today’s seller’s market means sellers can call the shots, but does NOT mean that they will get away with arbitrarily overpricing their homes. That will be true for any remaining seller’s markets for the rest of the year. The higher price ranges, above $750,000, will be much slower. This range accounts for 43% of the active listing inventory and 29% of total demand. As is always true, there are fewer buyers, as a percentage, in the upper ranges compared to the lower ranges. It is purely an affordability issue. Thus, it makes sense that this range has many more challenges in selling.

The higher the price, the more challenging it becomes to sell. In many cases throughout the year, the ultra-luxury ranges, homes priced above $2 million, slip into a lethargic market with expected market times ballooning to above one or even two years. This market does not respond with quick price reductions; instead, they must patiently wait for either the market to evolve on its own or carefully analyze any changes that need to be addressed. It also marches to the beat of its own drum and does not change as radically as the rest of the housing market.

Currently, Newport Coast, Laguna Beach, Corona del Mar, Coto De Caza, Ladera Ranch, and all homes above $1.5 million, are experiencing a balanced market with an expected market time of at least five months. Expect the number of cities and price ranges in this select group to increase during the Autumn and Holiday Markets. It is incumbent upon sellers to know their specific market and price range as it continues to evolve.

The lower ranges are slowing too. For homes priced below $750,000, the expected market time is at 2.5 months compared to 1.5 months one year ago. This range will not be an exception, as it too will slow during the Autumn and Holidays, just not as profound as the upper ranges. It will still require a very careful approach and accurate pricing. There are simply fewer buyers in the market, so not every seller will be successful. Properly pricing homes NOW is the best strategy and approach.

The bottom line, the window of opportunity in taking advantage of the second best time of the year, the Summer Market, as well as a more favorable expected market time, is coming to a close. Benefit from proper pricing now before a different, more patient strategy will be required.

o.c.housing.chart.7.20.14

Active Inventory: The active inventory increased by 4% in the past two weeks.

The active listing inventory added an additional 276 homes in the past two weeks and now totals 7,811. Thus far in 2014 the inventory has grown without pause, adding an additional 3,093, a 65% increase, and is poised to continue to increase through the end August. Keep in mind, in order for the active inventory to grow, more home need to be placed on the market than are coming off as pending sales. Last year at this time there were 5,340 homes on the market, 2,486 fewer than today.

o.c.inventory.7.20.14

DemandDemand increased by 1% in the past two weeks.

Demand, the number of new pending sales over the past month, increased by 24 and now totals 2,501. After an initial small dip in demand in July, it will slightly rise in August. Last year at this time demand was at 2,663, 162 additional pending sales compared to today. 

Distressed Breakdown: The distressed inventory increased by 6% in the past two weeks.

The distressed inventory, foreclosures and short sales combined, increased by 17 homes and now totals 281. In 2014, the distressed inventory has not changed much, starting the year at 271. The long term trend is for it to remain at a very low level. Last month, they represented only 5% of all closed sales.

In the past two weeks, the number of active foreclosures increased by 7 homes and now totals 76. 1% of the active inventory is a foreclosure. The expected market time for foreclosures is 69 days. The short sale inventory increased by 10 homes in the past two weeks and now totals 205. The expected market time is 46 days and remains one of the hottest segments of the Orange County market. Short sales represent 2.6% of the total active inventory.

Steven Thomas, Quantitative Economics and Decision Sciences

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Default Rate Falls to Historically Low Levels in Large Metros

An article by Derek Templeton, of DSNews.com, July 15th, 2014

As the unemployment rate and other economic measures continue to improve, American consumers appear to be gaining a greater ability to meet their credit obligations.

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As the unemployment rate and other economic measures continue to improve, American consumers appear  to be gaining a greater ability to meet their credit obligations.

A report released Tuesday by S&P Dow Jones Indices and Experian showed a decline in default rates among five of the largest cities in the nation to historically low levels.

The national composite for all types of credit default posted 1.02% in June, its lowest reading since the organization began collecting the data ten years ago.

Consistent with recent reports that payment priorities may be shifting among Americans back to pre- downturn norms, mortgages lead the way with first mortgages clocking in at just 0.89 percent default. The default rate at second mortgages was even lower at 0.57 percent.

“Consumer credit default rates continue to drift lower and have reached a historical low,” says David M. Blitzer, Managing Director and Chairman of the Index Committee for S&P Dow Jones Indices.

“Recent economic reports are encouraging with the unemployment rate now at a six year low and strong job creation in recent months. The continued declines in consumer default rates confirm other indicators of an improving economy. Credit standards for mortgage loans continue to be somewhat restrictive and may be contributing to low first mortgage default rates”.

Of the large metropolitan areas surveyed, Dallas, Texas was the only city to actually see a rise in default levels. However, the slight increase comes on the heels of the city’s lowest rate of default recorded in the history of the survey the previous month.

Concerns about the direction of the economy and the effect that is has on the credit market are not unfounded but even as the housing recovery slows, the lack of significant default in the market can only be seen as a positive indicator.

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Orange County Real Estate Market Report – Mid Year Edition

Here is the latest real estate market report from my favorite local economist, Steven Thomas:

Calendar pagesOrange County Housing Report:  OC Housing – Mid Year Update 

July 6, 2014

The first two quarters of 2014 are in the rearview mirror and this year is

unquestionably different from prior years. 

Mid-Year Update: This year’s market is marching to the beat of its own drum.

From 2007 through 2011, the Great Recession brought housing to its knees. The market was dictated by lenders and their new strict guidelines; plus, they controlled the market with the unbelievable numbers of foreclosures and short sales. Distressed properties were the norm. However, by mid-2011, housing began to mend. It was undetectable to anybody participating in the market, at first, but slowly but surely, the active listing inventory began to drop as fewer homes were placed on the market, including foreclosures and shorts sales.

In 2012 the green light was switched and, initially, investors flooded the market. They were quickly followed by a relentless stream of normal buyers. The inventory continued to drop as demand grew. Multiple offers were generated and cash was king. Homes flew off the market at prices that beat the socks off of the most recent comparable sales. Appreciation was rampant.

The first half of 2013 was nothing short of crazy. The inventory dropped to a ridiculous, anemic level. There were not enough homes coming on the market as most homeowners sat back and watched their homes appreciate, restoring just about all of the losses from the Great Recession. Buyers and investors wanted to take advantage of the incredible values and historically low interest rates; they were willing to pay any price for a home, even if that meant paying thousands more than the most recent closed sales. The uncontrollable appreciation slowed by the midpoint of 2013. Suddenly, homeowners no longer got away with overpricing their homes and they began to sit. By August, buyers were unwilling to pay extra for a home; instead, they wanted to pay as close to the Fair Market Value as possible. The inventory climbed from mid-March through October on the backs of overpriced sellers.

The second half of 2013 paved the way for 2014, a year that has been marked thus far with a relentless increase in the active inventory. Let’s take a closer look at the major changes in 2014 that have differentiated itself as a unique year:

  • Active Inventory – after starting the year at 4,733, the active listing inventory has increased by 60% and now sits at 7,550 and is still climbing. The long term average for Orange County is about 8,500 homes and within site. Even if that level is not reached this year, the added inventory has created quite a bit of breathing room for buyers. So many homes are overpriced, that buyers’ sense of urgency has just about vanished, unless a home is properly priced. The vast majority of sellers learn the hard way that overpricing is a front row ticket to sitting on the market without success.
  • Demand – there is demand for housing, but there just are not enough realistically priced homes on the market thus far this year. As a result, demand, the number of new pending sales over the prior month, has been noticeably lower than the past couple of years. Currently, demand is running about 15% less than last year at this time.
  • Expected Market Time – with an increasing inventory and less demand, the expected market time has been much higher than the last couple of years. Currently it is at 90 days. Compare that to last year’s 49 days and the overall feel in the streets is palpably different. At three months, it is still a seller’s market, but not like 2012 and 2013. Double digit year over year appreciation has been replaced with 3-5% annual appreciation, meaning that any appreciation from month to month is almost undetectable. In other words, sellers can no longer get away with arbitrarily and overzealously pricing their homes. It’s a seller’s market where they get to call all of the shots and may get a few thousand dollars more than the last comparable sale IF AND ONLY IF they price their homes realistically.
  • Distressed Properties – for the first two quarters of 2014, there have been 69% fewer foreclosures and short sales. There were only 242 closed foreclosures in the first six months of the year compared to 698 last year and 2,249 in 2012. There were only 624 closed short sales thus far in 2014 compared to 2,091 last year and 3,810 in 2012. With the dramatic rise in values, fewer homeowners are underwater, negating the need for a short sale. Slowly but surely, the distressed market’s grip on Orange County housing has loosened and no longer has an influence on the overall market.
  • Equity Sellers – last year was marked by the return of the equity seller. It was up 42% from 2012 to 2013. In comparing 2014 to 2013, the number of equity sellers is pretty similar, just 2% more so far this year. There are a lot more equity sellers that are actively listed right now, but many are unsuccessful because they just are not approaching the market realistically. The difference from year to year would be much greater if sellers would just price their homes closer to their Fair Market Value. Unfortunately, by the time most sellers will realize the error in their approach, both the Spring and Summer markets will be in the past, the best time of the year to sell.

From here, we can expect more of the same, an increasing inventory through the end of summer, an increase in the expected market time, and a slow move away from a seller’s market to a balanced market.

YoY-1st-half-2014

Active Inventory: The active inventory increased by 3% in the past two weeks.

The active listing inventory added an additional 187 homes in the past two weeks and now totals 7,550. Keep in mind, in order for the active inventory to grow, more home need to be placed on the market than are coming off as pending sales. Last year at this time there were 4,727 homes on the market, 2,823 fewer than today.

inventory-1st-half-2014

DemandDemand dropped by 10% in the past two weeks.

Demand, the number of new pending sales over the past month, decreased by 276 and now totals 2,477. It typically drops considerable at the start of July, which includes the slowing due to the end of the school year, graduations, and the beginning of summer vacations, all of which distract buyers from pulling the trigger and looking at homes. Demand will improve in August prior to dropping for the Autumn and Holiday Markets.

Last year at this time there were 2,909 pending sales, 432 more than today. 

Distressed Breakdown: The distressed inventory increased by 7% in the past two weeks.

The distressed inventory, foreclosures and short sales combined, increased by 18 homes in the past two weeks and now totals 264. In 2014, the distressed inventory started the year at 271 and really has not changed much at all. The long term trend is for it to remain at a very low level. Last month, they represented less than 6% of all closed sales.

In the past two weeks, the number of active foreclosures increased by 6 homes and now totals 69. Less than 1% of the active inventory is a foreclosure. The expected market time for foreclosures is 58 days. The short sale inventory increased by 12 homes in the past two weeks and now totals 195. The expected market time is 40 days. Short sales represent less than 3% of the total active inventory. ( End of Steven’s report.)

Steven Thomas,  Quantitative Economics and Decision Sciences

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Foreclosure Inventory Continues to Shrink in May

An article by Colin Robins, of DSNews.com  June 24, 2014

foreclosure-signBlack Knight Financial Services released its “First Look” at May Mortgage data, which found that foreclosure inventory declined to its lowest level since July 2008. As a percentage of total inventory, foreclosure pre-sale inventory is 1.91 percent, down 5.56 percent month-over month.

The percentage of total U.S. foreclosure pre-sale inventory is down 37.23 percent year-over-year.

Foreclosure starts, however, are creeping back upwards. Foreclosure starts totaled 86,300 for the month of May, an increase of 9.52 percent from April. Yearly, foreclosure starts remain down by 26.11 percent. Overall delinquency rates remained steady, down a mere 0.01 percent to 5.62 percent in May.

The number of properties that are 30 days or more past due but not yet in foreclosure totaled roughly 2.8 million, an 18,000 property increase from the previous month yet a decline of 204,000 from the previous year.

Properties 90 days or more past due totaled 1.1 million, down monthly and yearly by 18,000 and 166,000 respectively. Properties that are 30 days or more past due or in foreclosure totaled 3.8 million.

The top five states by non-current percentage include: Mississippi (13.75 percent); New Jersey (12.62 percent); Florida (11.28 percent); New York (10.91 percent); and Louisiana (10.66 percent)

The bottom five states by non-current percentage include: North Dakota (2.5 percent); South Dakota (3.61 percent); Colorado (3.82 percent); Montana (3.96 percent); and Alaska (4.06 percent). ( End of Colin’s article.)

From Bob Phillips, regarding just Orange County, California.  Here’s some local information on the subject from my good friend Steven Thomas, who produces a bi-weekly “Orange County Housing Report.”

Distressed BreakdownThe distressed inventory dropped to its lowest level since last August.

The distressed inventory, foreclosures and short sales combined, decreased by 7 homes and now totals 246. In 2014, the distressed inventory has not changed much, starting the year at 271. The long term trend is for it to remain at a very low level. Last month, they represented only 6% of all closed sales.

In the past two weeks, the number of active foreclosures increased by 3 homes and now totals 63. Less than 1% of the active inventory is a foreclosure. The expected market time for foreclosures is only 39 days. The short sale inventory decreased by 10 homes in the past two weeks and now totals 183. The expected market time is 38 days. Short sales represent 2.5% of the total active inventory.” ( End of Steven’s excerpt.)

Are YOU ( Or is someone you know.)  having trouble making your mortgage payments?

I have been assisting homeowners having difficulty with their mortgages for the past 5 years, and have both extensive training, ( As a CDPE, Certified Distressed Property Expert.)  and year’s of “in the trenches” experience.  If you, or someone you know, is having difficulty making their mortgage payments, give me a call or text at 949-887-5305, or shoot me an email at BobPhillipsRE@gmail.com.  I have solutions – let’s talk about them.

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Orange County Housing Report: The Market is on Cruise Control

Here is the latest Orange County Housing Report from my friend Steven Thomas:

Orange County Housing Report:  The Market is on Cruise Control  ( June 8th, 2014.)

The Orange County housing market is not changing that much. What you see is what you will get for the rest of the year. 

cruise-controlCruise Control: The inventory is increasing, demand is flat, and foreclosures and short sales are almost nonexistent.

This year’s housing market is remarkably different than the prior two extremely hot years. The market is still really strong; it’s just not out of control crazy like before. 2012 and 2013 were marked by very low inventories and not enough homes to go around, so multiple bids and rampant appreciation were the norm. Home values were rocketing upward, almost too fast. The appreciation that occurred in those two years should have been spread over five years. It just happened overnight, way too fast.

Flash forward to today, and the active inventory has been on the rise the entire year. We have gone from an inventory of 4,733 homes at the start of the year to 7,182 today, a 52% increase. Meanwhile demand has not changed much this spring. In the past month, demand has only increased by 24 homes and totals 2,723, far fewer than last year when it posted 3,144 pending sales. And, short sales and foreclosures only account for 7% of all closed sales thus far in 2014. For those buyers holding out for a foreclosure, they made up only 2% of closed sales. The chances of securing a foreclosure, if that’s what your heart desires, are extremely slim. You can also expect a lot of competition since everybody is sniffing around for a “deal.”

With a rising inventory and flat demand, the expected market time has been rising and appreciation has slowed to a crawl. As a matter of fact, appreciation is starting to bump up against a ceiling. Because values have increased substantially, they are at a point where they cannot continue to increase without taking a giant bite out of home affordability. Buyers do not want to be left holding the bag like they did right before the Great Recession, so they are not allowing the bidding up of prices to continue. They have traded in their exuberant zeal to pay whatever price to obtain a home for a methodical approach to paying the Fair Market Value of a home. That’s because home values were a deal over the past couple of years and now they are priced where they need to be. They are no longer a “deal,” but they are also not overinflated either.

Values are bumping along a ceiling, not really changing much at all from one month to the next. The average sales price for May was $721,000 this year versus $692,000 last year, only a 4% difference and that is year over year. Month to month it is almost negligible.

So, if you are a seller, waiting for values to rise to your overpriced level, or if you are a homeowner waiting for values to increase before you place your home on the market, you are going to be waiting a very long time. Today’s market is going to be tomorrow’s market for some time into the future. What you see is what you get. The Orange County housing market really does feel like it’s on cruise control with no major changes recently nor into the future. Sellers need to get real and price their homes according to the most recent comparable sales. If you are on the market for a while with no offers to date, the market is speaking to you loud and clear, “You are overpriced.”

For buyers, if you are waiting to purchase because you think that home values are going to drop down the road, think again. That is not going to happen anytime soon. If that’s the message that you are reading into this report, you are receiving the wrong message. Memo to all buyers: it is still a seller’s market. Sellers are in control. If they price their home at the Fair Market Value, they will procure plenty of activity and will sell quickly. Sellers are not able to randomly price their homes, but they are still in the driver’s seat. The expected market time would have to rise to 6 months for it to transform into a buyer’s market. Currently, the expected market time is 2.64 months, or 79 days. Not even close to the 180 days needed to tip the scales to a buyer’s market.

It is as if the housing market is on cruise control. The inventory is rising and will continue to through the end of the summer. Demand is not changing much and that will continue through the end of summer as well. Distressed properties, both foreclosures and short sales, will take a backseat in the housing market for the long term. The expected market time will continue to slowly rise, but will not slip into buyer’s market territory anytime soon. This is the Orange County housing market. To expect anything different right now or on the horizon is irrational.

Active Inventory: The active inventory increased by 8% in the past month.
Inventory-6-8-14

The active listing inventory added an additional 162 homes in the past two weeks and now totals 7,182, levels not seen since February 2012, 28 months ago. This year, the inventory has grown unabated and is poised to continue to increase through the end August.

After starting the year at 4,733, the inventory has climbed 2,449 additional homes, a 52% increase. Keep in mind, in order for the active inventory to grow, more home need to be placed on the market than are coming off as pending sales. Last year at this time there were 4,133 homes on the market, 3,049 fewer than today.

DemandDemand remained almost unchanged in the past month.

Demand-6-8-14

Demand, the number of new pending sales over the past month, increased by 36 and now totals 2,723. We are about to leave behind the Spring Market and enter into the Summer Market where demand will continue the change of not changing much at all. It will drop a bit in July, but will increase a little in August, one last hoorah before downgrading a bit in the Autumn market when the kids go back to school. 

Distressed Breakdown: Since the end of April, the distressed inventory has only increase by 4 homes.

The distressed inventory, foreclosures and short sales combined, decreased by 6 homes and now totals 253. In 2014, the distressed inventory has not changed much, starting the year at 271. The long term trend is for it to remain at a very low level. Last month, they represented only 6% of all closed sales.

In the past two weeks, the number of active foreclosures decreased by 14 homes and now totals 60. There are 144 zip codes in Orange County, so there simply are not enough foreclosures to go around. Less than 1% of the active inventory is a foreclosure. The expected market time for foreclosures is only 31 days and is currently the hottest segment of the housing market. The short sale inventory increased by 8 homes in the past two weeks and now totals 193. The expected market time is 39 days. Short sales represent less than 3% of the total active inventory. ( End of Steven’s report.)

 

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Black Knight: 1 in 10 Borrowers Underwater

An article by Colin Robins of DSNews.com, May 5th, 2014:

next-exit“In Black Knight Financial Services’ latest Mortgage Monitor Report, the company found that only one in ten Americans are still underwater, down from one in three in 2010. Overall, the company’s look at March data reflected a shifting landscape. As home prices have risen over the past two years, many distressed loans have worked their way through the system and the percentage of Americans with negative equity has declined considerably.

“Two years of relatively consecutive home price increases and a general decline in the number of distressed loans have contributed to a decreasing number of underwater borrowers,” said Kostya Gradushy, Black Knight’s manager of Loan Data and Customer Analytics.

“Looking at current combined loan-to-value (CLTV), we see that while four years ago 34 percent of borrowers were in negative equity positions, today that number has dropped to just about 10 percent of active mortgage loans,” Gradushy said.

Gradushy references the 10.1 percent negative equity average, but what states homeowners reside in paint a clearer picture of negative equity across the spectrum. Judicial states have a higher negative equity rate at 13.4 percent, compared to the 7.9 percent rate experienced in non-judicial states. ( California is usually a non-judicial state.)

Regardless, Gradushy notes that both judicial and non-judicial states have experienced declines. “Overall, nearly half of all borrowers today are both in positive equity positions and of strong credit quality—credit scores of 700 or above. Four years ago, that category of borrowers represented over a third of active mortgages,” Gradushy said.

The total delinquency rate is 5.37 percent, the lowest since October 2007 according to Black Knight. Month-over-month, delinquency rates have declined to 7.57 percent and are down yearly 16.29 percent in March.

The total U.S. foreclosure pre-sale inventory stands at 2.07 percent, the lowest figure since October 2008. Inventory rates are down 36.69 percent year-over-year.

Black Knight had more positive news in its Mortage Monitor Report: leading indicators, such as foreclosure starts, new problem loan percentage, 90-day defaults count, and 30 to 60 roll count are all down heading into the second quarter.

The company offered that the 2013 population of loans was “the best vintage on record,” but the statement belies the fact that higher credit restrictions severely hampered new originations for lower credit borrowers.

The top five states with the highest total non-current loans were Mississippi (13.4 percent), New Jersey (12.9 percent), Florida (12.1 percent), New York (11.1 percent), and Maine (10.6 percent).

Excluding Mississippi, the remaining four states are judicial states, suggesting the longer timelines required to resolve foreclosures are impacting non-current loan rates, depressing the market’s ability to quickly clear the remaining backlog in foreclosure pipeline.” ( End of Colin’s article.)

From Bob Phillips:   While foreclosure activity in South Orange County is WAY down, there are still a small number of home owners still struggling with their monthly payments, while not having enough equity in their homes to sell, under normal circumstances.  If you, or someone you know, is still struggling with their mortgage payments, with a loan that is higher than the value of their home, there are alternatives available.

You might be able to refinance to a lower rate and payment, or may be able to modify the loan to a lower amount, while also lowering your payments, or you might be able to do a short sale, to get out from under the weight of such a mortgage.  I am trained and experienced in helping find such solutions, and provide such assistance at NO cost to you.  If you are seeking a solution, drop me a line, or give me a call.  Chances are excellent that I can help.

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